More women on the board, more profits

Having more women on boards is improving the financial performance of the companies who elect them, new La Trobe research shows.

In the largest study of
its kind to be conducted in Australia, La Trobe Business School Accounting
researchers, Alireza Vafaei, Kamran Ahmed and Paul Mather collated data on the
relationship between board diversity and firm performance in the top 500
ASX-listed companies over a seven-year period.

The study looked at the
performance of the 500 firms on a yearly basis from 2005 to 2011 and found a
positive and significant association between female non-executives on boards
and firm financial performance.

It also found larger firms
are more likely to have women on their boards and that the percentage of female
directors has increased since 2010 – the year amendments were made to ASX
Corporate Governance Council principles to increase board diversity.

The findings, published in
the Australian Accounting Review, represent the most conclusive
evidence to date of the positive impact increased board diversity is having on
Australian firms' financial performance.

Head of La Trobe Business School and report co-author Professor Paul Mather said that one of the study's main findings is that there was a causal
relationship.

"Board diversity is
affecting performance, it's not that better performing firms are recruiting
more women," he said.

He said the study sought
to address some of the limitations of previous research by increasing the
number of ASX firms included in their sample size and looking at performance over
a longer period. The study also employed multiple measures of firm performance.

Mather said the study had
implications for future board practices and regulation.

"Showing
that women on boards is associated with enhanced firm performance supports the
business case for the recent Australian regulatory change, informs board
nomination committees and complements equity arguments for increasing the
number of women on boards."